NVIDIA, not expensive?

Author: Li Xiaoyin

Source: Hard AI

Overnight, NVIDIA's stock price surged by 7% again, leading the market and its market value is only $100 billion away from Apple.

After the latest financial report, NVIDIA's stock price has hit a historical high for three consecutive days, with a total increase of 20%. NVIDIA has risen by over 130% so far this year.

Analyst Ben Reitzes from Melius Research commented that the fundamental reason supporting NVIDIA's continuous stock price increase is that the company's EBIT margin has reached 69%, and its performance is "extraordinary".

Reitzes stated that even if NVIDIA's profit margin decreases in the future, considering the company's massive scale, a profit margin of over 60% is still "unique".

The report mentioned:

"We believe that in the next two years, no company will have a strong chance to challenge NVIDIA's profit margin."

While having strong profitability, Reitzes believes that NVIDIA's stock price is not expensive. The report mentioned that NVIDIA's forecasted P/E ratio is around 1.1 times, much lower than major chip and software companies like Qualcomm, Broadcom, Salesforce, etc.

Furthermore, Reitzes also expressed interest in NVIDIA's growing cash flow, expecting it to exceed $240 billion in the next three years:

"Of course, NVIDIA is currently a leading growth company, but it will soon have a huge cash balance."

"However, the company may find it difficult to make large transactions and may turn to meaningful buybacks."

Taking Apple as an example, the company's P/E ratio has been maintained at a "mature level" of 20-30 times over the past four years, attributed to multiple "massive buybacks".

Reitzes mentioned that based on the current price, a $200 billion stock buyback would mean an 8% reduction in NVIDIA's outstanding shares.

In the report, Reitzes maintained a "buy" rating for NVIDIA and set a target price of $1250, indicating a 9.6% upside potential from the current closing price